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Considerations To Be Made When Buying A Home
American society is geared toward home ownership. The desire to own a home, and the Difficult process of purchasing one, can have tremendous impact on an individual's or a family's finances. A home represents the single largest financial commitment most people will make in their lifetimes. It therefore requires a careful, reasoned decision based on a thorough examination of the steps involved in the purchase. What follows are some of the basics involved in buying a home and obtaining a mortgage. Potential home buyers are cautioned to seek out as much additional information as is practical from specialized books, real estate professionals, and friends who have made similar purchases. Owning their own home is something most people believe to be desirable regardless of their financial circumstances. They think that owning a home is a perfect investment, and that renting is akin to throwing money away. This is not always the case. Home ownership often includes a great many hidden expenses, while renters take care of the basic need for shelter at a set monthly cost without having to deal with such headaches as taxes, sewage disposal, or sidewalk repairs. A number of factors need to be considered when deciding whether you should buy your own home. First among these should be the way you lead your life. Home ownership can provide greater space, a chance to set down roots, the option to make any alterations you choose, the possibility of providing yard space and better schools for your children, and the pride of having a home of your own. Renters have greater flexibility about when they can move, pay less of their income for shelter, avoid the ancillary costs and added work of maintaining a residence, and can use any excess funds for investments that offer a guaranteed rate of return. Also of great importance in the decision to buy a home is your  current financial situation.
Home ownership requires enough money to make a down payment (generally at least 10 percent of the purchase price, and often 20 or 25 percent), to obtain a mortgage, and to make payments on that mortgage for many years to come. Renters need to have enough money to pay the rent each month. It is best to shop for a mortgage before you shop for a home so as to know how much money is available to you. A longstanding rule of thumb is that the annual cost of a home should not exceed 25 percent of your gross income. If you can manage monthly payments that do not exceed 25 percent of your income, you will probably have little trouble obtaining a mortgage or making the payments. But even if mortgage payments come to 25 percent of your income, the cost of a home will be substantially more. Funds to cover utilities, water and sewage costs, taxes, repairs, improvements, and even garbage cans and yard equipment will be needed. Additional costs may include more costly commutation. It is wise to set aside an additional 10 percent of the basic annual costs for unseen expenses. A careful evaluation of present and projected income and expenses--including money spent on nonessential interests, hobbies, and pastimes--will give you some idea of what you can afford to pay for a home on a monthly basis. From there, you can look at mortgage payment schedules to find out how much of a mortgage you can afford. One thing to keep in mind when deciding what you can afford is that many experts recommend against buying the most expensive house in a given neighborhood. A lower-priced home in a higher-priced neighborhood offers greater security and a better likelihood of seeing the property value increase. If there is a choice between buying a new home or one that has been occupied before, you must weight the pluses and minuses of each. The value of similar new and used homes in similar neighborhoods will go up about equally, but other aspects of each may make you choose one over the other. New homes have more modern amenities, are often less likely to suffer system breakdowns (that is, plumbing, heating, and water supply), should not require much upkeep or many repairs, and often can be mortgaged for a greater percentage of the price over a longer term. Older homes frequently are less expensive, have larger rooms, are better built, have finished landscaping, and are closer to the center of town. The individual merits of the actual houses you look at will guide you in making a final choice.

Among the many decisions to be made in the home-buying process is whether to make a large or small down payment. While a higher down payment can reduce your monthly payments or the term of the mortgage, there are a number of advantages in making as small a down payment as possible: you retain access to your money; the money you pay in later years will be less valuable, because of inflation, than any spent now; and the interest included in your mortgage payments is tax deductible, so the more you borrow, the more you can deduct. At one time the only mortgages widely available in the United States were fixed-rate mortgages that required fixed monthly payments for a specific period, usually 25 or 30 years. Recently, however, a wide variety of different mortgage options have become available. The graduated payment mortgage (GPM) has a fixed rate of interest but varying payments. Payments begin lower and are increased at a fixed rate each year, rising to a level higher than on a fixed-rate mortgage. Initial payments may be lower than the cost of interest, in which case the unpaid interest is added to the principal. This type is good for first-time buyers who expect their incomes to rise during the course of the mortgage. The pledged-account mortgage (PAM) is a variation of the GPM that takes the difference between payments and the accrued interest from a savings account pledged to that purpose by the borrower. The adjustable rate mortgage (ARM) has a flexible interest rate that varies according to a selected interest-rate index. It may go up when the index goes up and most go down when the index goes down; it may contain limitations on the maximum and minimum rates. The changing rate can affect the monthly payment, the term, or the outstanding principal. Some plans change the rate more frequently than they change the payments. This can result in underpayments on interest that are then added to the outstanding balance. The graduated-payment adjustable-rate mortgage (GPARM) combines features of GPMs and ARMs. Some plans defer interest in the early years; others set rising payments during the first several years; and still others fix low payments early on. Countless variations are possible. The wraparound mortgage allows the buyer to assume the balance of a lower-rate mortgage from the seller, making payments to amortize both that original mortgage and the additional amount being borrowed at prevailing rates. This mortgage reduces the overall interest rate on the total amount. The shared-appreciation mortgage (SAM) is available from some lenders. In return for a reduced interest rate, the lender receives a set portion of the amount by which the home has appreciated when it is sold or the loan is paid. Because the final value of the home cannot be determined in advance, additional interest can be due if the value has not appreciated sufficiently. A reverse mortgage really is not a mortgage at all, but a way of getting monthly payments in return for some of the equity in a house. It is advantageous for those over 75 with significant equity and insufficient cash. In addition to the mortgage payments themselves, many lenders also charge "points." These additional amounts--each point is equal to 1 percent of the loan--are paid by the buyer at the time the mortgage goes into effect, at the closing. Anything and everything can and possibly will go wrong when it comes time to draw up a contract and close the deal to buy a home. No list of potential pitfalls could be considered all-inclusive. The best advice is to obtain a lawyer who is familiar with the kind of property purchase you are making and to read every word in every document presented to you with your lawyer.

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